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Bankruptcy

Federal Bankruptcy laws have changed for the first time in more than a quarter century. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has enacted many new restrictive laws which are much less debtor friendly. Considerable litigation is sure to arise over the next few years as attorneys resolve conflicting portions of the 2005 Act.

Important features of the Bankruptcy Reform Act of 2005
Chapter 7 Bankruptcy is a 90 day process that discharges all of a person’s debt. To qualify for Chapter 7 you must pass what is know as the “means test”.  If it is determined that the individual or family is over the applicable median income for their household size (click here for updated median income figures) and can repay 25% or more of their debt over the life of a chapter 13 payment plan, they will typically not be eligible to file a Chapter 7. Business bankruptcy does not require the means test analysis.

Chapter 13 Bankruptcy is a 3 to 5 year repayment plan in which a monthly payment is made to the Bankruptcy Trustee who distributes the funds to the creditors. Debtors are required to pay in 100% of their disposable income over the life of the bankruptcy plan. At the end of the payment plan a discharge order enters as in chapter 7 bankruptcy, liquidating any remaining debt.

All individuals seeking Chapter 7 or Chapter 13 Bankruptcy protection must undergo credit counseling within the 180 day period preceding the filing of the petition.